IMF to visit Egypt as nation seeks economic help

An Egyptian public transportation driver tea as he stands in front of vehicles parked due to fuel shortage at a bus station, on the outskirts of Cairo, Egypt, Monday, March 11, 2013. On Sunday, drivers of Cairo's popular communal taxis staged a strike to protest fuel shortages, creating a traffic nightmare on the already congested streets of the city. Some of the drivers, armed with knives and firearms, attacked others who did not observe the strike or got into fights with motorists angered by t
— AP

An Egyptian public transportation driver tea as he stands in front of vehicles parked due to fuel shortage at a bus station, on the outskirts of Cairo, Egypt, Monday, March 11, 2013. On Sunday, drivers of Cairo's popular communal taxis staged a strike to protest fuel shortages, creating a traffic nightmare on the already congested streets of the city. Some of the drivers, armed with knives and firearms, attacked others who did not observe the strike or got into fights with motorists angered by t
/ AP

Though Mubarak's two sons are still in prison facing corruption charges, several members of the former autocrat's inner-most circle have been released from prison in recent months.

But a decision by the country's top prosecutor to ban two of Egypt's biggest tycoons from travel caused shockwaves in business circles.

Onsi Sawiris and his son, Nassef, who manage Orascom Construction Industries, are in a dispute with the government over as much as 14 billion Egyptian pounds (almost $2 billion) in alleged taxes owed from the sale of shares in the company, which is one of the region's largest employers.

Onsi Sawiris' other billionaire son, Naguib, is a founder of one of Egypt's liberal opposition parties and was the owner of a liberal Egyptian satellite channel. In a recent television interview, Naguib Sawiris suggested the tax case was politically motivated.

Ashraf Swelam, senior advisor to the Egyptian National Competitiveness Council, criticized the timing of the travel ban. "This sends a negative signal to Egyptian and foreign investors that the government is not serious about pursuing reconciliation," he said.

Egypt has kept its foreign currency reserves afloat with handouts from oil-rich Gulf countries including Qatar, which has infused $5 billion in Egypt's central bank since Morsi took office last summer.

Qatar, among other external donors and lenders, has signaled it is no longer willing to lend Cairo money before a deal with the IMF is reached.

Egypt needs a cash infusion soon to keep the Egyptian pound from sliding. The local currency has depreciated by around 10 percent of its value to the U.S. dollar since December.

Foreign reserves are also needed to pay for crucial wheat imports and government subsidies of basic commodities like diesel that the vast majority of Egyptians rely on for survival. Energy subsidies make up the largest chunk of the around $20 billion a year - about a third of the national budget - that Egypt spends on subsidies. Cutting fuel subsidies are believed to be at the top of a government reform plan presented to the IMF to secure the loan.

Speaking on condition of anonymity in line with regulations, a U.S. diplomat in Cairo said this week that economic recovery will become increasingly difficult in Egypt if the IMF deal is not signed soon.

The London-based consultancy, Capital Economics, said in a recent statement that Egypt was too geopolitically important to fall and should be able to tide itself over with funds from other countries until an IMF loan is signed.

In what may have been a final lifeline before an IMF deal is reached, the United States and Egypt signed a $190 million budget support agreement this week. It is the first installment of a planned $450 million in budget support from the United States.

The IMF deal has also been stalled because Morsi's government is phasing in subsidy reforms to apparently delay implementing the unpopular measures ahead of parliamentary elections. The vote was slated to start in April but has been delayed indefinitely due to issues with the election law.

Morsi's Muslim Brotherhood group, which has a majority in the upper house of parliament, is seeking to holds its grip on power in the lower house of parliament too. If his government implements subsidy cuts and tax reforms too quickly, public backlash could cost the group at the ballot box.